In his Sept. 14 "Fort Report," Rep. Jeff Fortenberry wrote, “Around $1.2 trillion in accumulated earnings of U.S. multinationals stored overseas have been brought back home.”
This is also known as repatriated income. The new tax law, passed in December of last year, lowered the tax rate for repatriated funds to 15.5 percent in order to incentivize U.S. multinational corporations to bring earnings from abroad back to the United States.
The intention for this provision of the new tax law was twofold:
* Provide a much lower tax burden for corporations to return overseas dollars to the U.S. for capital expansion.
* Help pay for the budget deficit incurred to accommodate the new tax law.
Therefore, if $1.2 trillion had been repatriated, the tax collected would have been $186 billion. So, when I read that $1.2 trillion had already been repatriated, it caught my attention.
I contacted Fortenberry’s office to better understand how they arrived at $1.2 trillion. I was told that their numbers had come from the Bureau of Economic Analysis (BEA). When I then contacted the BEA, I was informed that, in fact, $294.9 billion had been repatriated in the first quarter of 2018, and another $169.5 billion had been repatriated in the second quarter of 2018.
This amounts to a total of $464.4 billion of repatriated income through two quarters of this year (i.e., the tax collected on $464.4 billion would be $71.9 billion, a significant difference from $186 billion collected on $1.2 trillion).
When I again contacted Fortenberry’s office to inform them their reported total of repatriated funds was very different from BEA’s estimate, I was told that they had taken the original first-quarter repatriation funds ($305.6 billion, which the BEA later revised downward to $294.9 billion) and multiplied that number by four to arrive at the $1.2 trillion.
I instructed Fortenberry’s staff that you cannot take a number for a quarter, and, a priori, assume that that amount will be repatriated for the next three quarters. That would be like running a publicly traded company and saying that since you made $100 million in the first quarter, you can then claim that you made $400 million for the year -- the Securities and Exchange Commission would have something to say about that. I have yet to see a correction.
What’s important about this discrepancy is that there is growing distrust by the public of information coming from our government and elected officials, and it’s essential that they do everything they can to report accurate information.
Estimates for the duration of the tax law show that, over its 10-year lifespan, the U.S. will add $1 trillion to $1.5 trillion to the U.S. national debt. That’s a steep price to pay, and it’s one that some of our elected representatives aren’t talking about.
While there is some good news to report about the state of the economy and the correlation with the tax cuts, it’s disingenuous to report inflated information in order to align a message to fit a narrative. What many politicians fail to address is the fact that the U.S. government is taking on increasing budget deficits in order to pay for the tax cuts.
This is problematic because the current national debt exceeds $21 trillion dollars. Continued borrowing and refinancing of our debt are going to be increasingly expensive as the Fed continues to normalize interest rates.
The argument in favor of the tax cuts was that it would stimulate GDP growth and thus lead to tax revenue growth, which would pay for the deficits incurred. To date, the tax cuts have not generated the increase in tax revenues that were forecast, which likely means we’re all going to end up paying more in taxes in the long run.
Ultimately, it’s imperative that our elected representatives be truthful when they report economic data, especially when economic promises have been made and reality doesn’t match the promise.